With several cryptocurrency projects collapsing, resulting in a widespread market correction, industry players are warning the situation could worsen in future.
In particular, Joe Lonsdale, the founder of software company Palantir and venture capitalist, has suggested that most cryptocurrency companies will likely collapse in a Ponzi-scheme-style bankruptcy, he said in an interview with Fox News published on December 4.
However, Lonsdale stressed that cryptocurrencies are here to stay while noting most centralized entities will be the most affected.
“Overall, I think you’re going to have most things crash. <…> Various crypto lenders, crypto tokens and other parts of the ecosystem were a Ponzi scheme, and it made no sense whatsoever. This is what you’d expect in any situation where you have stuff that’s not regulated,” he said.
Crypto sector’s sustainability
Indeed, the FTX cryptocurrency exchange collapse has rattled the cryptocurrency market, putting into question the sector’s sustainability. Despite the uncertainty, Lonsdale maintained cryptocurrency technology has more use cases in future, like facilitating cross-border transactions in return for promoting financial liberty.
“It does make sense to have more decentralized power and for something like Bitcoin to exist. <…> It’s helped people get money out of Russia, out of Venezuela, out of China. <…> It allows more kind of liberty for the financial system from really bad-acting governments,” Lonsdale added.
It is worth noting that since the collapse of FTX, questions have emerged over the management of centralized crypto companies. Notably, the main area of contention centres around the disclosure of financial records.
Crypto speculative bubble
Additionally, some companies have filed for bankruptcy after the market recorded a bull run in 2021. However, according to Lonsdale, the crypto space was mainly in a “speculative bubble driven by cheap money and driven by a lot of these Ponzi schemes.”
In this line, a Finbold report indicated that former Securities Exchange Commission (SEC) enforcement official John Reed suggested that USDT stablecoin provider Tether might be running a Ponzi scheme over what he termed as a lack of transparency.
At the same time, Reed had earlier expressed criticism regarding the management of FTX as funder Sam Bankman-Fried came under fire for his management of customer funds. According to Reeds, the FTX situation is worse than the infamous Bernie Madoff Ponzi scheme.
Featured image: Screenshot via FOX News Video.